New US sour crude years from benchmark status-CME

By IBT Staff Reporter On 12/07/09 AT 10:32 AM

HOUSTON - Officials of CME Group Inc expressed optimism on Friday about the success of a new physically deliverable U.S. sour crude oil futures that launches next week, but said it would take years to become a benchmark, if it ever does.

The exchange has tried before to launch a sour crude contract without success. But with worldwide flows of crude increasingly sour, or high in sulfur content, and interest rising in a sour benchmark, the time may have come at last, officials said.

Trading is scheduled to start on Monday in the new futures contract for crude based on the specifications of Mars sour MRS- crude delivered at the Louisiana Offshore Oil Port terminal at Clovelly, Louisiana.

This will do something. Does it become a blockbuster starting out? Those usually take years to develop, Richard Redding, CME managing director of products and services, told a news media breakfast.

CME is home of the most widely traded benchmark oil futures contract, West Texas Intermediate sweet CLc1, which is traded on the New York Mercantile Exchange.

Traders have complained that the WTI sweet, or low sulfur, contract mainly reflects inventories at its Cushing, Oklahoma, delivery point, hundreds of miles inland from the main U.S. Gulf Coast refining center where much imported crude arrives.

The final shape of any benchmark will be determined by buyers and sellers in the market, and may differ from the product CME offers on electronic platforms starting Monday, said Bob Levin, CME director of emerging products.

For example, there has been market talk of the Poseidon sour PSD- stream merging into the Mars stream, Levin said. The two grades in the past traded at a significant differential but have been trading nearly in tandem recently.

In addition to plans for physically delivered sour, CME on Nov. 23 started trading a new set of cash-settled contracts based on the Argus Sour Crude Index, but has had no trading in them so far, officials said.

The ASCI index is based on a basket of U.S. sours, including Mars, Poseidon and Southern Green Canyon SGC-.

The ASCI-based, cash-settled contracts are not displayed on electronic trading platforms yet, but plans are to list them in the near future, Redding said. He did not specify a date.

That set of ASCI-based swaps was launched after Saudi Arabia said in October its January deliveries would be priced off the Argus sour crude index, rather than the Platts WTI marker it had relied upon in the past.

CME has argued the switch is good for WTI business because the Argus basket is priced against WTI. Analysts have said that the switch is a step away from WTI and an effort to insulate Saudi crudes from increasingly volatile WTI. (Editing by Marguerita Choy) (Email: b.nichols@thomsonreuters.com; +1 713 210 8510; Reuters Messaging: bruce.nichols.reuters.com@reuters.net)